The most important governance reform in financial services would make risk management the explicit duty of the board. The experience of the past decade shows that non-executive directors cannot rely on representations by management about risk exposure. Companies trading hundreds of billions of dollars’ worth of credit instruments had inadequate risk management systems that were neither understood, challenged nor improved by boardroom review. This suggests that even boards of top-tier financial institutions accepted overwhelmingly almost all management’s risk assessments.

In danger of blowing through my own etiquette risk-parameters I'll interpret Mr Schrage's point, if for nothing other than to save you time.

His points, boiled down, resonate thusly ...

fire your Board;

replace them with smarter people (at higher pay), who understand modern financial markets, particularly derivatives, and who are smart & humane enough to not fear the new transparency;

yes, transparency: tape the Board Meetings;

make these audio clips available in Quicktime files on the web -- like SEC filings;

The problem with this is that only Warren Buffett, George Soros and Micheal Schrage have enough smarts, common sense and self-effacing humor (read 'humanity') to qualify for this new kind of corporate Board of Directors and still have the meetings be productive, useful & free-flowing exchanges of information rather than rote, scripted legalistic affairs in which everyone is -- despite being maxed out on Corporate Directors' & Officers' Libility Coverage -- covering their assets.

Despite the difficulties noted, I still think this is a great idea. Not because we can clone Schrage; although there is something to that. It's because we've learned so much in the software development realm in the last 20 years about the benefits of sharing through transparency.

It figures such an idea for bank corporate governance would emanate from MIT because MIT is the home of an open couse-ware curriculum and arguably the birthplace of open-source software development. The chief lesson from MIT's sharing modi is that knowledge is more effective when many eyeballs attend any particular problem.

How this would impact Board governance -- and the local and widespread understanding of risk -- is obvious if you think about it for as long as it takes one average home-owner to stare at and comprehend the workings of the ball-cock mechanism governing the water flow of a common ceramic toilet. Open-sourcing the Boardmeeting means we don't need Soros or Buffett or Schrage -- or at least we don't need multiples of them -- to execute.

The new Open-Source Governance can be replicated if only few companies lead the way to show how its done. The transparency would be self-reinforcing and cause best-practices to spread around the world. The total propogation might take less than a year, once the practical conduct and benefits become visible in a few well-publicized audio Board minutes.

In addition to the crew who took the "bail-out" funds, who shall be first to start taking the Board's responsibilities seriously?